• U.S. natural gas producers anticipate higher demand and prices driven by growing LNG exports and the rapid expansion of data centers.’
• While natural gas producers plan to increase output to meet rising demand, they aim to avoid overproduction.
• Drillers are learning lessons from a history of unrestrained drilling in shale plays like the Permian and Haynesville.

U.S. natural gas producers are preparing for stronger demand and higher prices for their product as data center proliferation accelerates further and years of depressed gas prices become a thing of the past. They are not letting it all happen by itself either-gas executives are in talks with data center developers to build them where the gas is.

“Expectation of a step change in power demand has created opportunities for increasing dialogue around the potential for power generation and data projects within the Permian Basin,” the co-chief executive of Permian Resources said recently, as quoted by Reuters.

Also recently, Black & Veatch, the EPC and construction major, wrote that natural gas was just about the optimal power option for data centers, which made it quite appealing for data center developers.

“Enterprises eager to make an environmental impact through greener strategies and energy innovation that lessen their carbon footprints get reliable, accessible and cleaner power from natural gas,” Black & Veatch wrote. “Natural gas supply and delivery are extremely reliable, given that pipelines typically are below ground and protected from nature’s elements. Natural gas also is cheaper than diesel, and widely available generators now can meet the industry standard of a 10-second startup time for emergency power.”

Related: High Energy Costs Continue to Plague European Industry

In anticipation of more demand, gas producers are already preparing to boost production-after they just cut it for the first time in four years this year. The Energy Information Administration said in its latest Short-Term Energy Report that it expected natural gas production in 2025 to inch up to 114 billion cu ft daily from 113 billion cu ft daily this year, or 1%, led by a 6% increase in output in the Permian. This happens to be where gas executives are trying to convince data center developers to build their new facilities.

“Rather than continuing to get low margins on our gas… we’re trying to figure out a way to be creative on ways to turn some of that natural gas into more value for our shareholders,” the chief executive of Diamondback Energy said, as quoted by Reuters last week.

There is more, however. Grid supply is not unlimited, even in Texas and New Mexico with their abundant natural gas supply, which means that a new mechanism of power supply may be applied for the needs of data center operators, again per the above Reuters report. It cited analysts as saying data centers, power utilities, and gas producers could negotiate some sort of a three-way agreement to secure the supply necessary for data centers’ needs.

What all this means is what many analysts have been forecasting: the AI race will be powered by natural gas, and not wind and solar. The reason is simple enough: natural gas supply is more reliable than the supply of weather-dependent energy sources. Interestingly, the EIA does not seem to care about AI electricity needs. In its latest STEO, it said it expected power generation next year to increase by 3%, “mostly to supply increased air-conditioning demand compared with last year, driven by hotter summer temperatures this year.”

There is always a chance that next summer will be less hot than this summer was, but with data centers, the trajectory of demand will continue higher-just like LNG export demand. “The combination of growing LNG exports, increased electrical generation demand, and the prospect of winter weather suggests a tighter supply-demand picture for natural gas in 2025 and beyond,” the chief executive of Coterra Energy said at the company’s third-quarter analyst call, as quoted by Reuters. And that picture suggests higher prices and higher output-but not too high.

Oil drillers found out the hard way why drilling at will was not wise and took a more disciplined approach to production. Natural gas drillers have also had to learn this lesson the hard way, even if it wasn’t them who drove the surplus supply situation but those shale oil drillers with their associated gas in the Permian. In any case, when the industry sees a stronger case for supply growth, it will not unleash all available supply. It will likely pace itself.

Enverus recently estimated the remaining reserve situation for one of the biggest gas-producing shale regions, Haynesville, and found that it depends on the demand. “We estimate the Haynesville has 12.5 years of sub-$3.00/Mcf inventory at last year’s turn-in-line (TIL) cadence,” Enverus analyst Jimmy McNamara said. “This drops to 10.5 years when modeling EIR’s 2026 TIL cadence that increases Haynesville supply by 2.0 Bcf/d to match incoming LNG demand.”

Some companies have better inventory than others and would be able to produce cheap gas for longer, but all in all, the price rise seems inevitable when factoring in both the rise in LNG demand, especially in Europe, and the demand surge expected from the tech industry for its data centers. And so does the production increase, cementing the position of natural gas as the optimal power generation fuel.

https://oilprice.com/Energy/Gas-Prices/US-Gas-Drillers-Saddle-Up-for-Data-Center-Fueled-Demand-Ride.amp.html